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Nigeria’s 2 sovereign sukuk issues and potential future issuance will help the FGN meet its
funding deficits and broaden the array of capital market instruments.
4.7.3 ANALYSIS OF SUKUK STRUCTURES, ISSUANCE AND INVESTMENT
Analysis of Sukuk Structures
The Rules on Sukuk provide a list of sukuk structures that are based on Shariah contracts,
including ijarah, istisna’, musharakah and murabahah. Despite the facilitating legal provisions,
the 2 Nigerian sovereign sukuk structures are based on ijarah.
Analysis of Sukuk Issuances – Supply (Sell Side)
The size and liquidity of a debt market are important indicators of its vibrancy. A snapshot of
the size of the Nigerian domestic bond market shows that it is still small compared to the
equity market. The issuance of the FGN Sukuk and the Osun State Sukuk has slightly deepened
the nascent Nigerian capital markets, by increasing the variety of instruments available to
issuers and investors. Chart 4.58 depicts the size of the domestic bond market from 2014 to
2016. As at end-2016, the bond market was equivalent to 20% of the entire domestic bond
market while the equity market dominated with a 70% share.
Chart 4.58: Size of Capital Markets in Nigeria (2014-2016)
Source: NSE
Table 4.35 shows that within the domestic bond market, sovereign bond issues (FGN and state
government bonds) outnumber corporate bonds. This highlights that debt securities have been
a reliable and cost-effective source of financing for the government. Sovereign bonds are
touted as safe, low-risk investments as they are direct obligations of the government, which is
fully responsible for the payment of the coupon/rental income and the repayment of the
principal at maturity. They are also backed by the full faith and credit of the federal
government. However, the dominance of sovereign bonds in the debt market will crowd out or
deter corporate issuers from entering the market.